Existing law, the Outdoor Advertising Act, provides for the regulation by the Department of Transportation of advertising displays, as defined, within view of public highways.

This bill would enact the Highway Safety and Information Act. The bill would authorize the department, subject to federal approval, to enter into an agreement pursuant to a best value competitive procurement and competitive process for a project with a contractor an entity to construct, upgrade or reconstruct, and operate a network of changeable message signs within the rights-of-way of the state highway system that would include a demonstration phase of the project as a condition precedent to the full implementation of the agreement, as specified. The bill would require the person entity with whom the department has entered into the agreement to contract and receive funds for the placement of advertisements, meeting certain standards established by the department, on the changeable message signs when they are not being used by the department. The bill would require revenues derived from the project to be allocated between the department and the person entity with whom the department has entered into the agreement and would require those revenues received by the department to be deposited in the State Highway Account, subject to appropriation by the Legislature. The bill would authorize the department to adopt guidelines and procedures relative to advertising on changeable message signs. The bill would require the department to submit a specified report to the fiscal and policy committees of the Legislature having jurisdiction over transportation matters.

Existing law, the Outdoor Advertising Act, provides for the regulation by the Department of Transportation of advertising displays, as defined, within view of public highways.

This bill would enact the Highway Safety and Information Act. The bill would authorize the department, subject to federal approval, to enter into an agreement pursuant to a best value procurement and competitive process for a project with a contractor to construct, upgrade or reconstruct, and operate a network of changeable message signs within the rights-of-way of the state highway system, system that would include a demonstration phase of the project as a condition precedent to the full implementation of the agreement, as specified. The bill would require the person with whom the department has entered into the agreement to contract and receive funds for the placement of advertisements, meeting certain standards established by the department, on the changeable message signs when they are not being used by the department. The bill would require revenues derived from the project to be allocated between the department and the person with whom the department has entered into the agreement and would require those revenues received by the department to be deposited in the State Highway Account, subject to appropriation by the Legislature. The bill would authorize the department to adopt guidelines and procedures relative to advertising on changeable message signs. The bill would require the department to submit a specified report to the fiscal and policy committees of the Legislature having jurisdiction over transportation matters.

Existing law, the Outdoor Advertising Act, provides for the regulation by the Department of Transportation of advertising displays, as defined, within view of public highways.

This bill would enact the Highway Safety and Information Act. The bill would authorize the department, subject to federal approval, to enter into an agreement pursuant to a best value procurement and competitive process for a project with a contractor to construct, upgrade or reconstruct, and operate a network of changeable message signs within the rights-of-way of the state highway system, as specified. The bill would require the person with whom the department has entered into the agreement to contract and receive funds for the placement of advertisements, meeting certain standards established by the department, on the changeable message signs when they are not being used by the department. The bill would require revenues derived from the project to be allocated between the department and the person with whom the department has entered into the agreement and would require those revenues received by the department to be deposited in the State Highway Account, subject to appropriation by the Legislature. The bill would authorize the department to adopt guidelines and procedures relative to advertising on changeable message signs. The bill would require the department to submit a specified report to the fiscal and policy committees of the Legislature having jurisdiction over transportation matters.

 THIRD READING  

Bill No: SB 1397

Author:

:

Vote:

SENATE TRANS. & HOUSING COMMITTEE: 6-2, 4/19/16

AYES: Beall, Cannella, Bates, Gaines, Leyva, Mendoza

NOES: Allen, McGuire

NO VOTE RECORDED: Galgiani, Roth, Wieckowski

SENATE APPROPRIATIONS COMMITTEE: 6-1, 5/27/16

AYES: Lara, Bates, Beall, Hill, Mendoza, Nielsen

NOES: McGuire

SUBJECT:

SOURCE: Transportation California

DIGEST: This bill permits the California Department of Transportation (Caltrans), following the completion of a demonstration phase and upon receipt of federal approval, to enter into public-private partnerships to use changeable message signs (CMS) for commercial advertising purposes when they are not being used for safety- and transportation-related messages.

ANALYSIS:

Existing law:

1. Requires all states to adopt the federal Manual on Uniform Traffic Control Devices (MUTCD), or to at least substantially comply with it. The federal MUTCD prescribes standards for signs, signals, markings, and other devices used to guide traffic on streets and highways throughout the country. California has adopted its own MUTCD, which has been approved by federal officials as being “substantially in compliance” with the federal MUTCD.
2. Provides that traffic control devices or their supports shall not bear any advertising message or any other message that is not related to traffic control.
3. Provides that only those traffic control devices that conform to the California MUTCD may be placed on a street or highway.

This bill:

1. Permits Caltrans to enter into an agreement with one entity or legal entity to use a CMS sign for a single project, which shall include a demonstration phase. Specifically, the following terms are defined:
   1. “Agreement” means a legally enforceable agreement, as specified, for the project to install and operate CMS.
   2. “Demonstration phase” means the initial phase of the project whereby the safety, operational, and fiscal viability of the placement of advertising on CMS in exchange for revenue to the state and an upgraded CMS are demonstrated.
   3. “Entity” means an individual, partnership, limited partnership, trust, estate, association, limited liability company, or other entity.
   4. “Project” means to study, plan, design, construct, reconstruct, develop, finance, maintain, rebuild, improve, repair, lease, operate, or any combination of these, a state-of-the-art, full-color network of CMS within the right-of-way of the state highway system.
2. Requires Caltrans to conduct a best-value competitive procurement and negotiate an initial agreement to become effective upon receipt of any necessary federal authorization.
   1. A proposal submitted to Caltrans in response to the best value competitive procurement shall be accompanied by a certified check in an amount to be determined by Caltrans and specified in the request for proposals to cover the reasonable costs of preparation of the best value procurement materials, the review and evaluation of the proposal, and the negotiation of an agreement with the selected entity.
   2. The department shall promptly return the certificated checks accompanying proposals not accepted for consideration by Caltrans.
   3. The agreement shall provide that the entity with whom the agreement is entered will bear all reasonable costs of the project, including, but not limited to, costs of installation, maintenance, and operation of the project, and that reasonable costs incurred to procure the agreement and not covered by the certified check shall be reimbursed to Caltrans.
3. Requires the agreement with Caltrans to do all of the following:
   1. Provide for the construction, upgrade or reconstruction, and operation of the CMS. Caltrans shall be responsible for the maintenance of the CMS.
   2. Provide that any ownership interest shall completely revert to Caltrans at the expiration of the agreement.
   3. Provide that all Caltrans emergency notifications shall have priority over other messaging, including advertising.
   4. Provide that Caltrans, in consultation with the California Highway Patrol, shall retain the ability to make a determination on the safety of the CMS and may take actions necessary to protect public safety.
   5. Provide that Caltrans shall conduct a demonstration phase of the project as a condition precedent to the full implementation of the agreement described in this section.
   6. Provide that Caltrans shall retain an independent consultant to perform an evaluation of the results of the demonstration phase. Caltrans shall review the results of the demonstration phase and determine at its discretion whether the placement of commercial advertising with all CMS creates an unsafe distraction to motorists, and shall consider any other issues of concern.
   7. Provide for the entity contracting with Caltrans to share revenues generated in connection with the use of the CMS for commercial advertising in furtherance of the public interest.
4. Requires the demonstration phase to do all of the following:
   1. Involve the construction, upgrade or reconstruction, and operation of CMS at current and planned locations. Caltrans shall determine the number of CMS signs needed to be included in the demonstration, which shall be sufficiently substantive to evaluate the impacts and the return on investment of the demonstration.
   2. Begin immediately following federal approval and last until full implementation is authorized, and if full implementation is not authorized, then for a period of time sufficient to allow the entity contracting with Caltrans to recover its capital and related costs for the project.
5. Requires revenues from CMS to be allocated between the legal entity with whom the agreement is made and with Caltrans in accordance with the agreement details. Revenues generated from advertising on CMS and received by Caltrans shall be deposited into the State Highway Account in the State Transportation Fund. Funding shall be subject to appropriation by the legislature, consistent with the provisions of any federal authorization.
6. Requires Caltrans to adopt policies and guidelines in connection with the content and formatting of the advertising. Advertising on CMS shall be in the form and under those conditions as may be determined by Caltrans and as set forth in standards, guidelines, and procedures adopted by Caltrans.
   1. Advertising shall not compromise safety or Caltrans’ safety communications.
   2. CMS subject to this bill shall be exempt from Section 5408 of the Business and Professions Code, which permits CMS to be placed within 660 feet of the right-of-way if meeting specified requirements, such as size and display limitations.
   3. Caltrans shall not enter into an agreement with any entity that will display or advertise alcohol, tobacco, firearms, sexually explicit material, political messages or advertisements, or any illegal activity.
7. Requires CMS to meet the design, construction, and operating requirements in the Caltrans standards and guidelines.
8. Permits Caltrans to use CMS for emergency messages, as needed, and requires dedicated time to use the CMS for traveler information, motorist safety, awareness campaigns, and any other public service messaging, without providing compensation to the entity with whom it enters into an agreement.
9. Requires Caltrans, promptly following its review of the consultant’s evaluation of the demonstration phase of the project, and before authorizing the full the implementation of the project, to submit a report to the relevant fiscal and policy committees of the legislature. The report shall include the consultant’s report and any recommended department revisions to the project, and shall also include information, including ,but not limited to, the following:
   1. The status of implementation, such as number of signs placed and locations.
   2. The amount of revenue received, cost savings to Caltrans, and costs incurred by Caltrans.
   3. An assessment of the effect that the project has had on public safety, emergency notification, traveler information, and motorist safety and awareness campaigns.
   4. A description of the types of advertising content displayed by the CMS.
10. Provides that if Caltrans is advised by the U.S. Department of Transportation or any of its agencies that a display of advertising authorized by this article would result in the reduction of federal and highway funds, advertising shall not be made.
11. Prohibits advertising on CMS on officially designated scenic highways.

Comments

1. Purpose. According to the author, this bill permits Caltrans to upgrade existing CMS to provide state-of-the-art responsive, high-definition information capability for enhanced statewide emergency and traveler communications, at no cost to the state, through a public/private partnership. This would begin as a demonstration project; statewide application would follow demonstration of the efficacy of the project. Additionally, revenues generated from this bill could be used for critically needed and currently unfunded highway projects and road maintenance and repairs.
2. California and federal MUTCD. Federal law requires all states to adopt the federal MUTCD, or to be in substantial compliance with it. California has adopted its own MUTCD, which has been approved by federal officials as being “substantially in compliance” with the federal MUTCD.

The federal and California MUTCDs contain provisions that regulate CMS. Both the federal and the California MUTCDs limit the use of CMS to traffic operations and regulatory, warning, and guidance information, and use of CMS for advertising is expressly prohibited. The federal and California MUTCDs also specify that a CMS may be used to display a safety, transportation-related, emergency homeland security, or AMBER Alert messages and that the display format shall not be of a type that could be considered similar to advertising displays.

1. What are the effects of this bill? This bill permits Caltrans, with federal approval and following the completion of a pilot, to enter into public-private partnerships to use CMS for commercial advertising purposes when it is not being used for safety- and transportation-related messages. The private partner would pay to upgrade the existing CMS and Caltrans would be required to maintain the CMS. Before allowing CMS to be used for advertising statewide, Caltrans would be required to conduct a pilot project at locations determined by the department. An independent consultant must perform an independent evaluation of the pilot, which shall be evaluated by the department to determine whether the placement of advertising on the CMS creates an unsafe distraction to motorists and any other issues of concern.
2. Opposition. According to the opposition, the California State Outdoor Advertising Association (CSOAA), this bill will be a significant departure from past state and federal policy that only permits traffic safety messages and AMBER alerts on CMS and fails to consider local control issues and content management. Federal law does not permit commercial advertising signs on the right-of-way and requires states to adopt the federal MUTCD. A violation of these laws includes a penalty of up to 10% of the state’s federal funding. Additionally, this bill may create spacing conflicts with existing inventory along the right-of-way, and is unclear as to which signs will be eligible for application and approval. Further, this bill creates ambiguity for outdoor companies that maintained lawfully permitted displays in communities that have adopted moratoriums on outdoor advertising.

CSOAA also raises a concern over the state stepping into a position where it can regulate speech. In particular, CSOAA points to two cases, one in Georgia and one in Missouri, in which the Ku Klux Klan (KKK) sued those states over denials of their applications to their respective Adopt-a-Highway programs administered by their respective state departments of transportation. The case in Georgia is pending in front of the Georgia Supreme Court. In Missouri, however, a U.S. District Court judge ruled that Missouri’s refusal to allow the KKK to participate in the Adopt-a-Highway program was unconstitutional, and when the 8th Circuit Court of Appeals confirmed that finding on appeal in March 2000, the state had to erect signs announcing the KKK’s sponsorship of a portion of I-55. CSOAA states that its members exercise editorial control to adjust the content of advertising.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

According to the Senate Appropriations Committee:

1. Estimated Caltrans up-front administrative costs in the range of $100,000 to seek federal waivers and adopt guidelines and regulations. These costs would be incurred prior to preparing any procurement materials. (State Highway Account)
   
2. Estimated additional costs of up to $150,000 to prepare procurement materials, evaluate proposals, and negotiate agreements. These costs would be reimbursed from certified funds provided by bidders. (State Highway Account)
   
3. Unknown ongoing administrative costs to Caltrans, likely reimbursable from advertising revenues, subject to the terms of an agreement. Caltrans would incur costs for oversight, and contracts with both an advertising consultant for business and marketing advice and an independent consultant to review safety and operational data. (State Highway Account)
   
4. Unknown, significant revenue gains during the term of the agreement, potentially in the tens of millions annually, and possibly over $100 million annually in out years of a long-term contract with a maximized build-out of the CMS system. It could be several years before the state realizes any revenue gains as vendor costs to construct or upgrade CMS displays would be recovered from advertising revenues. Revenues would depend upon parameters of the agreement, including the number of CMS displays that are part of the program, the projected revenues anticipated from each display, the term of the contract, and revenue sharing agreements specified in the contract. (State Highway Account)

SUPPORT: (Verified 5/31/16)

Transportation California (source)

Associated General Contractors

California Construction and Industrial Materials Association

California Nevada Cement Association

California-Nevada Conference of Operating Engineers

California Sign Association

OPPOSITION: (Verified 5/31/16)

California State Outdoor Advertising Association

City of Buena Park

City of Carson

City of Compton

Prepared by:

5/31/16 22:24:19

**** END ****

SENATE COMMITTEE ON APPROPRIATIONS

Senator Ricardo Lara, Chair

2015 - 2016 Regular Session

SB 1397 (Huff) - Highway safety and information program

Bill Summary:

SB 1397 would authorize the Department of Transportation (Caltrans), subject to federal approval, to enter into an agreement with a contractor to construct and operate a system of changeable message signs (CMS) on the state highway system that provides for the placement of advertisements on the signs when not in use by Caltrans. The bill would provide for an initial demonstration phase with reporting requirements prior to full implementation.

*********** ANALYSIS ADDENDUM – SUSPENSE FILE ***********

The following information is revised to reflect amendments

adopted by the committee on May 27, 2016

Fiscal Impact:

• Estimated Caltrans up-front administrative costs in the range of $100,000 to seek federal waivers and adopt guidelines and regulations. These costs would be incurred prior to preparing any procurement materials. (State Highway Account)
  
• Estimated additional costs of up to $150,000 to prepare procurement materials, evaluate proposals, and negotiate agreements. These costs would be reimbursed from certified funds provided by bidders. (State Highway Account)
  
• Unknown ongoing administrative costs to Caltrans, likely reimbursable from advertising revenues, subject to the terms of an agreement. Caltrans would incur costs for oversight, and contracts with both an advertising consultant for business and marketing advice and an independent consultant to review safety and operational data. (State Highway Account)
  
• Unknown, significant revenue gains during the term of the agreement, potentially in the tens of millions annually, and possibly over $100 million annually in out years of a long-term contract with a maximized build-out of the CMS system. It could be several years before the state realizes any revenue gains as vendor costs to construct or upgrade CMS displays would be recovered from advertising revenues. Revenues would depend upon parameters of the agreement, including the number of CMS displays that are part of the program, the projected revenues anticipated from each display, the term of the contract, and revenue sharing agreements specified in the contract. (State Highway Account)

Author Amendments:

• Require bidders to provide a certified check in an amount determined by Caltrans to cover the reasonable costs of preparation of best value procurement materials, review and evaluation of the proposal, and the negotiation of an agreement with the selected entity. Caltrans would be required to return checks accompanying proposals not accepted for consideration.
• Require the agreement to specify that the entity will bear all reasonable costs of the project, including costs for installation, maintenance, and operation of the project, and to provide for reimbursement of any Caltrans costs incurred in procuring the agreement that are not covered by the check submitted with the bid.
• Prohibit the display of political messages or advertisements on the changeable message signs.
• Clarify that all evaluation materials must be submitted to the Legislature for review prior to full implementation, including the independent consultant’s report and any Caltrans recommended revisions to the project.
• Make clarifying changes.
  

-- END --

SENATE COMMITTEE ON APPROPRIATIONS

Senator Ricardo Lara, Chair

2015 - 2016 Regular Session

SB 1397 (Huff) - Highway safety and information program

This bill meets the criteria for referral to the Suspense File.

Bill Summary:

SB 1397 would authorize the Department of Transportation (Caltrans), subject to federal approval, to enter into an agreement with a contractor to construct and operate a system of changeable message signs (CMS) on the state highway system that provides for the placement of advertisements on the signs when not in use by Caltrans. The bill would provide for an initial demonstration phase with reporting requirements prior to full implementation.

Fiscal Impact:

• Estimated Caltrans up-front administrative costs in the range of $100,000 to $300,000 to develop agreements, adopt regulations, seek federal waivers, and initiate the best value procurement process. These costs would be incurred prior to entering into an agreement with a contractor. (State Highway Account)
  
• Unknown ongoing administrative costs to Caltrans, likely reimbursable from advertising revenues, subject to the terms of an agreement. Caltrans would incur costs for oversight, maintenance, and contracts with both an advertising consultant for business and marketing advice and an independent consultant to review safety and operational data. (State Highway Account)
  
• Unknown, significant revenue gains during the term of the agreement, potentially in the tens of millions annually, and possibly over $100 million annually in out years of a long-term contract with a maximized build-out of the CMS system. It could be several years before the state realizes any revenue gains as vendor costs to construct or upgrade CMS displays would be recovered from advertising revenues. Revenues would depend upon parameters of the agreement, including the number of CMS displays that are part of the program, the projected revenues anticipated from each display, the term of the contract, and revenue sharing agreements specified in the contract. (State Highway Account) -----see staff comments-----

Background:

Existing federal law requires all states to adopt or substantially comply with the federal Manual on Uniform Traffic Control Devices (MUTCD), which prescribes standards for signs, signals, and pavement markings on all streets and highways. California has adopted its own MUTCD, which has been approved by federal officials as being "substantially in compliance" with the federal MUTCD. Both the federal and the California MUTCD limit the use of changeable message signs to traffic operations, regulatory, warning, and guidance information. Existing law prohibits the use of changeable message signs or other traffic control devices for advertising purposes.

Proposed Law:

SB 1397 would authorize Caltrans, subject to federal approval, to enter into an agreement with a single entity for a project to implement a state-of-the-art, full-color CMS network within the rights-of-way of the state highway system, excluding designated scenic highways, or a major arterial that is included within an integrated corridor management system. The bill requires Caltrans to conduct a best value procurement to select the contractor and to negotiate an initial agreement that would become effective upon federal authorization. Caltrans may retain a consultant to assist in the preparation of the best value criteria, selection of a contractor, and oversight of the project. Caltrans may provide preliminary design, inspection, and oversight services for which it would be reimbursed. The agreement must do all of the following:

• Provide for the construction, upgrade or reconstruction, and operation of any CMS selected for the project, and require Caltrans to be responsible for maintenance.
• Provide for complete reversion of any ownership interest in any CMS to Caltrans at the expiration of the agreement at no charge, and free of any liens.
• Provide that all Caltrans emergency notifications have priority over other messaging, including advertising.
• Provide that Caltrans, in consultation with the California Highway Patrol, retains the ability to make a determination on the safety of the CMS, and take specified actions.
• Require the contractor to indemnify, defend, and hold Caltrans harmless for any damage, injury claim, or incident in connection with the construction or operation of any CMS, or the advertising on those signs, excluding any advertising approved in advance by Caltrans, as specified.
• Provide that Caltrans shall conduct a demonstration phase of the project as a condition prior to full implementation that involves CMSs at current and planned locations selected by the department. Caltrans would determine the number of signs included in the demonstration, which must be sufficient to evaluate the impacts and return on investment of the demonstration. The demonstration would begin upon federal approval and last until full implementation is authorized, and if not authorized, then for sufficient time to allow the contractor to recover its capital and related costs.
• Require Caltrans to retain an independent consultant to evaluate the results of the demonstration phase. Caltrans would review results and the independent evaluation and determine whether placement of commercial advertising on the CMS network creates unsafe motorist distraction, and consider other identified concerns. Caltrans may require changes to the agreement to address issues of concern and to allow for full implementation of the project. If the agreement is amended to materially impact the ability to generate revenues, the contractor would be entitled to recover unreimbursed capital or operating expenses from Caltrans.
• Provide for the selected contractor to receive funds for the placement of commercial advertisements on the CMS system, and to share revenues generated in connection with the use of those signs.

The bill would require revenues to be allocated between the contractor and Caltrans in accordance with the agreement. Any revenues received by Caltrans must be deposited in the State Highway Account, and are not subject to transfer to the General Fund.

The bill requires Caltrans to adopt standards, policies, and guidelines to specify design, construction, and operating requirements, as well as content and formatting of the advertising, including prohibitions against the advertisement of alcohol, tobacco, firearms, sexually explicit material, or any illegal activity. Advertising would be exempt from certain placement and display standards, but the bill would prohibit ads that compromise safety or Caltrans’ safety communications functions.

SB 1397 would also require Caltrans to submit a report to the Legislature within two years of implementing the CMS project that includes the following: (1) the status of implementation, including the number of signs placed and their locations; (2) revenues received and any Caltrans costs and savings associated with the project, including costs incurred prior to entering into the agreement with the contractor; (3) an assessment of the project’s impact on public safety, emergency notification, traveler information, and motorist safety and awareness campaigns; and (4) a description of the types of advertising content displayed on the signs.

Related Legislation:

SB 853 (Committee on Budget and Fiscal Review), Chap. 27/2014, required Caltrans to report to the Legislature by January 10, 2015, on the subject of advertising on electronic CMS on the state highway system, and on the feasibility of a pilot project in that regard, including estimates of revenue. The report has not been released.

SB 854 (Committee on Budget and Fiscal Review), and AB 1614 (Committee on Budget), both of which failed passage on the Senate Floor in 2010, would have allowed advertising on the CMS or digital messaging signs on the state highway system, subject to federal approval.

Staff Comments:

There are currently over 830 existing CMS displays in operation. For purposes of the demonstration portion of the agreement, it is likely that some proportion of existing signs would be converted to digital displays. The number of displays would be determined by Caltrans as part of the agreement, but must be sufficient to evaluate the impacts and return on investment of the demonstration. According to information provided by sponsors, the estimated one-time cost to upgrade or reconstruct an existing display would be approximately $300,000 per sign. The costs to construct a new sign would be significantly higher. A fully built-out CMS network could include over 1300 displays, over 900 of which would include advertising.

Staff notes that the bill only authorizes an agreement with a single entity to conduct both the demonstration phase and the full implementation of the project. While the bill does provide for adjustments to the contract “to address issues of concern” after a consultant evaluates and Caltrans reviews the results of the demonstration phase, there are no provisions to have separate contracts for the demonstration phase and a full implementation phase. If full implementation is not authorized, the demonstration phase must continue until the contractor recovers its capital and related costs, and if the agreement is materially modified in a way that impacts revenue-generating capabilities, the contractor would be entitled to recover unreimbursed capital or operating expenses. Caltrans would retain ownership over any CMS displays that were constructed or converted during the project. The Committee may wish to consider whether it is prudent to authorize a full-implementation scenario without the option of legislative review following the demonstration phase.

If 100 existing signs were converted as part of the demonstration phase, the capital cost of converting them to full-color state-of-the-art displays would be approximately $30 million. Advertising revenues for each CMS would depend upon the location of the sign, the rate charged for each advertising slot, and the occupancy rate for each display. Actual implementation costs and revenues are highly speculative and also dependent upon the specific terms of the agreement for both the demonstration phase and full implementation. Based on information provided by the sponsors that illustrate potential revenue models, under a maximized 40-year agreement term using aggressive assumptions of installing 182 revenue-generating signs per year for five years (a total of 911 signs), the state share of revenues could be in the tens of millions in the early years, and may reach several hundred million annually around year 25. If full implementation were not authorized, it would likely be several years before sufficient advertising revenues were generated to cover the capital and operating costs of the contractor, and the state realized any net revenues.

Recommended Amendments:

Staff recommends that the findings and declarations that are currently drafted as a new Streets and Highways Code Section 172.2 be moved to an uncodified section of the bill for code clarity.

-- END --

SENATE COMMITTEE ON TRANSPORTATION AND HOUSING

Senator Jim Beall, Chair

2015 - 2016 Regular

Bill No: Hearing Date: 4/19/2016

SUBJECT:

DIGEST: This bill permits the California Department of Transportation (Caltrans), following the completion of a demonstration phase and upon receipt of federal approval, to enter into public-private partnerships to use changeable message signs (CMS) for commercial advertising purposes when they are not being used for safety- and transportation-related messages.

ANALYSIS:

Existing law:

1. Requires all states to adopt the federal Manual on Uniform Traffic Control Devices (MUTCD), or to at least substantially comply with it. The federal MUTCD prescribes standards for signs, signals, markings, and other devices used to guide traffic on streets and highways throughout the country. California has adopted its own MUTCD, which has been approved by federal officials as being “substantially in compliance” with the federal MUTCD.
2. Provides that traffic control devices or their supports shall not bear any advertising message or any other message that is not related to traffic control.
3. Provides that only those traffic control devices that conform to the California MUTCD may be placed on a street or highway.

This bill:

1. Permits Caltrans to enter into an agreement with one person or legal entity to use a CMS sign for a single project, which shall include a demonstration phase. Specifically, the following terms are defined:
   1. “Agreement” means a legally enforceable agreement, as specified, for the project to install and operate CMS.
   2. “Demonstration phase” means the initial phase of the project whereby the safety, operational, and fiscal viability of the placement of advertising on CMS in exchange for revenue to the state and an upgraded CMS are demonstrated.
   3. “Project” means to study, plan, design, construct, reconstruct, develop, finance, maintain, rebuild, improve, repair, lease, operate, or any combination of these, a state-of-the-art, full-color network of CMS within the right-of-way of the state highway system.
2. Requires Caltrans to conduct a best-value procurement and negotiate an initial agreement to become effective upon receipt of any necessary federal authorization.
3. Requires the agreement with Caltrans to do all of the following:
4. Provide for the construction, upgrade or reconstruction, and operation of the CMS. Caltrans shall be responsible for the maintenance of the CMS.
5. Provide that any ownership interest shall completely revert to Caltrans at the expiration of the agreement.
6. Provide that all Caltrans emergency notifications shall have priority over other messaging, including advertising.
7. Provide that Caltrans, in consultation with the California Highway Patrol, shall retain the ability to make a determination on the safety of the CMS and may take actions necessary to protect public safety.
8. Provide that Caltrans shall conduct a demonstration phase of the project as a condition precedent to the full implementation of the agreement described in this section.
9. Provide that Caltrans shall retain an independent consultant to perform an evaluation of the results of the demonstration phase. Caltrans shall review the results of the demonstration phase and determine in its discretion whether the placement of commercial advertising with all CMS creates an unsafe distraction to motorists, and shall consider any other issues of concern.
10. Provide for the person or legal entity contracting with Caltrans to share revenues generated in connection with the use of the CMS for commercial advertising in furtherance of the public interest.
11. Requires the demonstration phase to do all of the following:
12. Involve the construction, upgrade or reconstruction, and operation of CMS at current and planned locations equal to but not less than 15% of the number of existing and planned CMS signs at the initiation of the project and conducted by locations selected by Caltrans.
13. Begin immediately following federal approval and last until full implementation is authorized, and if full implementation is not authorized, then for a period of time sufficient to allow the person or legal entity contracting with Caltrans to recover its capital and related costs for the project.
14. Requires revenues from CMS to be allocated between the person or legal entity with whom the agreement is made and with Caltrans in accordance with the agreement details. Revenues generated from advertising on CMS and received by Caltrans shall be deposited into the State Highway Account in the State Transportation Fund. Funding shall be subject to appropriation by the legislature, consistent with the provisions of any federal authorization.
15. Requires Caltrans to adopt policies and guidelines in connection with the content and formatting of the advertising. Advertising on CMS shall be in the form and under those conditions as may be determined by Caltrans and as set forth in standards, guidelines, and procedures adopted by Caltrans.
16. Advertising shall not compromise safety or Caltrans’ safety communications.
17. CMS subject to this bill shall be exempt from Section 5408 of the Business and Professions Code, which permits CMS to be placed within 660 feet of the right-of-way if meeting specified requirements, such as size and display limitations.
18. Caltrans shall not enter into an agreement with any person or legal entity that will display or advertise alcohol, tobacco, firearms, sexually explicit material, or any illegal activity
19. Requires CMS to meet the design, construction, and operating requirements in the Caltrans standards and guidelines.
20. Permits Caltrans to use CMS for emergency messages, as needed, and requires dedicated time to use the CMS for traveler information, motorist safety, awareness campaigns, and any other public service messaging, without providing compensation to the person or legal entity with whom it enters into an agreement.
21. Requires Caltrans, no later than two years after the implementation of the project, to submit a report to the relevant fiscal and policy committees of the legislature, information including but not limited to the following:
22. The status of implementation, such as number of signs placed and locations
23. The amount of revenue received, cost savings to Caltrans, and costs incurred by Caltrans
24. An assessment of the effect that the project has had on public safety, emergency notification, traveler information, and motorist safety and awareness campaigns
25. A description of the types of advertising content displayed by the CMS

COMMENTS:

1. Purpose. According to the author, California roads are in disarray and California ranks 47^th in overall highway performance and 46^th in urban congestion. Highway system repair and maintenance is underfunded by $5 billion annually, and local street repair is underfunded by $1.8 billion a year. Currently, $1 billion in truck weight fees that are designed to maintain roads has been diverted in the general fund annually since 2010.

The author states that SB 1397 would permit Caltrans to upgrade existing CMS to provide state-of-the-art responsive, high-definition information capability for enhanced statewide emergency and traveler communications, at no cost to the state, through a public/private partnership. This would begin as a demonstration project initially conducted at a minimum of 15% of existing and planned locations; statewide application would follow demonstration of the efficacy of the project. Additionally, revenues generated from this bill could be used for critically needed and currently unfunded highway projects and road maintenance and repairs.

1. California and federal MUTCD. Federal law requires all states to adopt the federal MUTCD, or to be in substantial compliance with it. California has adopted its own MUTCD, which has been approved by federal officials as being “substantially in compliance” with the federal MUTCD.

In California, the MUTCD is developed by the Traffic Control Devices Committee (CTCDC). The CTCDC is convened and chaired by Caltrans and the committee is comprised of eight voting members representing the California Highway Patrol, the League of California Cities, the California State Association of Counties, and auto clubs. CTCDC meetings serve as required public hearings prior to the promulgation and adoption of rules related to traffic signs, signals, and pavement markings.

The federal and California MUTCDs contain provisions that regulate CMS. These provisions state that CMS have a large number of applications, including but not limited to:

1. Incident management and route diversion
2. Warning of adverse weather
3. Special event applications associated with traffic control or conditions
4. Control at crossing situations
5. Lane, ramp, and roadway control
6. Priced or other types of management lanes
7. Travel times
8. Warning situations
9. Traffic regulations
10. Speed control
11. Destination guidance

Both the federal and the California MUTCDs limit the use of CMS to traffic operations and regulatory, warning, and guidance information, and use of CMS for advertising is expressly prohibited. Safety- and transportation-related messages, however, such as, "DON’T DRINK AND DRIVE," "SEAT BELT BUCKLED?,” and “OZONE ALERT CODE RED — USE TRANSIT” are authorized. These messages are on a schedule set by Caltrans.

The federal and California MUTCDs also specify that a CMS may be used to display a safety, transportation-related, emergency homeland security, or AMBER Alert message and that the display format shall not be of a type that could be considered similar to advertising displays. In California, the CMS are utilized for AMBER, Silver, and Blue Alerts. Additionally, following the Governor’s State of Emergency declaration regarding the drought, the CMS have been used to display drought-related messages.

1. Federal preemption. Federal law requires all states to comply with the federal MUTCD, or to be substantially compliant with it. To utilize the CMS for advertising, Caltrans must seek a waiver from the federal government. Additionally, if Caltrans were to use the CMS as required in this bill without the receipt of a waiver, the Federal Highway Administration would be authorized by federal law to withhold 10% of the transportation funds California receives from the federal government. This amounts to $350 million (or 10% of $3.5 billion).

This bill currently requires Caltrans to obtain federal approval before advertising on CMS. The author will accept amendments explicitly stating that Caltrans shall be prohibited from using CMS for advertising if the federal government advises that advertising will result in the loss of federal funds.

1. What are the effects of this bill? This bill would permit Caltrans, with federal approval and following the completion of a pilot, to enter into public-private partnerships to use CMS for commercial advertising purposes when it is not being used for safety- and transportation-related messages. The private partner would pay to upgrade the existing CMS and Caltrans would be required to maintain the CMS. Before allowing CMS to be used for advertising statewide, Caltrans would be required to conduct a pilot project at locations determined by the department. An independent consultant must perform an independent evaluation of the pilot, which shall be evaluated by the department to determine whether the placement of advertising on the CMS creates an unsafe distraction to motorists and any other issues of concern.
2. Distracted driving. CMS are limited in scope to providing important traveler-related information in limited circumstances. Caltrans policy is to minimize the number of signs whenever possible to prevent “sign information overload,” which can interfere with drivers’ ability to process information and drive safely. In fact, both the federal and California MUTCD provide that, “Traffic control devices or their supports shall not bear any advertising message or any other message that is not related to traffic control.” For example, messages about drunk driving are on set schedules shortly before holidays in which drunk driving is traditionally elevated, such as New Year’s Eve, St. Patrick’s Day, and the Fourth of July. Caltrans also seeks to keep the signs blank whenever possible to prevent distracted driving. Expanding the use of CMS for advertising may increase distracted driving, reduce safety on California highways, and reduce the effectiveness of safety messages.
3. Size matters. California currently has over 832 CMS in operation. The bill requires the demonstration project to utilize no less than 15%, or over 120 CMS. Given concerns over distracted driving, the author will accept amendments leaving the number of participating CMS in the demonstration project to be determined by Caltrans, which number shall be sufficiently substantive to evaluate the impacts of the demonstration.
4. Scenic highways. The Federal Highway Beautification Act of 1965 called for the control of outdoor advertising, including removal of certain types of signs, along the nation’s growing interstate system and the existing federal-aid primary system. The California Legislature instituted the State Scenic Highway Program in 1963, and since then, Caltrans has maintained it. This program establishes the state’s responsibility for the protection and enhancement of California’s natural scenic beauty. Pursuant to that goal, the Legislature makes portions of the state highway system eligible to be a state scenic highway. Segments of freeways that are classified “landscaped freeway” are subject to the Outdoor Advertising Act, which preclude the installation of billboards. In order to maintain the integrity of California’s designated scenic highways, the author will accept amendments to prohibit advertising on CMS on officially designated Scenic Highways.
5. Opposition. According to the opposition, the California State Outdoor Advertising Association (CSOAA), this bill would be a significant departure from past state and federal policy that only permits traffic safety messages and AMBER alerts on CMS and fails to consider local control issues and content management. Federal law does not permit commercial advertising signs on the right-of-way and requires states to adopt the federal MUTCD. A violation of these laws includes a penalty of up to 10% of the state’s federal funding. Additionally, this bill may create spacing conflicts with existing inventory along the right-of-way, and is unclear as to which signs will be eligible for application and approval. Further, this bill creates ambiguity for outdoor companies that maintained lawfully permitted displays in communities that have adopted moratoriums on outdoor advertising.

CSOAA also raises a concern over the state stepping into a position where it can regulate speech. In particular, CSOAA points to two cases, one in Georgia and one in Missouri, in which the Ku Klux Klan (KKK) sued those states over denials of their applications to their respective Adopt-a-Highway programs administered by their respective state departments of transportation. The case in Georgia is pending in front of the Georgia Supreme Court. In Missouri, however, a U.S. District Court judge ruled that Missouri’s refusal to allow the KKK to participate in the Adopt-a-Highway program was unconstitutional, and when the 8th Circuit Court of Appeals confirmed that finding on appeal in March 2000, the state had to erect signs announcing the KKK’s sponsorship of a portion of I-55. CSOAA states that its members exercise editorial control to adjust the content of advertising.

Related Legislation:

AB 400 (Alejo, Chapter 693, Statutes of 2015) — required Caltrans, subject to federal approval, to update its internal policies to permit CMS to display specific types of messages related to voting.

SB 853 (Committee on Budget and Fiscal Review, Chapter 27, Statutes of 2014) — required Caltrans to report to the Legislature by January 10, 2015, on the subject of advertising on electronic CMS on the state highway system, and on the feasibility of a pilot project in that regard, including estimates of revenue. Caltrans has not yet delivered the report.

SB 854 (Committee on Budget and Fiscal Review, 2010) — would have authorized Caltrans to lease space for advertisements on digital messaging signs on the state highway system that are currently used for traveler information. These changes in statute would have required Caltrans receive a federal waiver before entering into any contract for advertisements on digital messaging signs and would have required that any such contract be provided to the legislature for a 30-day review prior to enactment. This bill failed passage on the Senate floor.

AB 1614 (Committee on Budget, 2010) — would have authorized an experimental program that would allow advertising on upgraded CMS on highway right of way. A federal waiver, or a change in federal law, was necessary to implement this program, and this bill stated the program cannot be implemented unless approved by the federal government. This bill failed passage on the Senate floor.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

POSITIONS: (Communicated to the committee before noon on Wednesday,

April 13, 2016.)

SUPPORT:

Transportation California (sponsor)

Associated General Contractors

California Construction and Industrial Materials Association

California Nevada Cement Association

California-Nevada Conference of Operating Engineers

OPPOSITION:

California State Outdoor Advertising Association

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